Strategic

Management:
Creating
Competitive
Advantages

Chapter One

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
After reading this chapter, you should have a good
understanding of:
LO1.1 The definition of strategic management and
its four key attributes.
LO1.2 The strategic management process and its
three interrelated and principal activities.
LO1.3 The vital role of corporate governance and
stakeholder management as well as how
“symbiosis” can be achieved among an
organization’s stakeholders.
1-2
 Learning Objectives (cont.)
LO1.4 The importance of social responsibility,
including environmental sustainability, and how it
can enhance a corporation’s innovation strategy.
LO1.5 The need for greater empowerment
throughout the organization.
LO1.6 How an awareness of a hierarchy of strategic
goals can help an organization achieve coherence in
its strategic direction.

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 Two Perspectives of Leadership
Romantic view
 Leader is the key force
in organization’s
success
External control
perspective
 Focus is on external
factors that may affect
an organization’s
success

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 QUESTION
A CEO made a lot of mistakes such as committing
errors in assessing the market and competitive
conditions and improperly redesigning the
organization into numerous business units. Such
errors led to significant performance declines. This
illustrates the __________ perspective of
leadership.
A. External control
B. Romantic
C. Internal mechanism
D. Operational
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 Example: 3M
Elements of Buckley’s turnaround
Set clear business goals for the company
Wanted 3M to develop lower-cost
products to compete in emerging markets
Became an outspoken champion for 3M
labs

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 What is Strategic Management?
Strategic Leaders must be
management must proactive, anticipate
become both a change, and
process and a way of continually refine
thinking throughout changes to their
the organization strategies

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 Defining Strategic Management
Strategic management
 Analyses, decisions, and actions an
organization undertakes in order to create
and sustain competitive advantages

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 Defining Strategic Management
Analysis
 Strategic goals
 Internal and external environment of the firm
Strategic decisions
 What industries should we compete in?
 How should we compete in those industries?

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 Defining Strategic Management
Actions
 Allocate necessary resources
 Design the organization to bring intended
strategies to reality

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 Two Fundamental Questions
1. How should we 2. How can we create
compete in order to competitive
create competitive advantages in the
advantages in the marketplace that are
marketplace? unique, valuable,
and difficult for rivals
to copy or
substitute?

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 Strategic Management Concepts

Exhibit 1.1

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 Key Attributes of Strategic
Management
Stakeholders
 those individuals, groups, and organizations who
have a “stake” in the success of the organization,
including owners (shareholders in a publicly held
corporation), employees, customers, suppliers,
the community at large,

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13
 Key Attributes of Strategic
Management
Ambidexterity
 The challenge managers face of both aligning
resources to take advantage of existing product
markets as well
as proactively
exploring new
opportunities

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Ambidextrous Behaviors in Individuals
They take time and are They are cooperative
alert to opportunities and seek out
beyond the confines of opportunities to
their own jobs combine their efforts
They are brokers, with others
always looking to build They are multitaskers
internal networks who are comfortable
wearing more than one
hat

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 Strategic Management Process
Intended strategy
 Decisions are determined only by analysis
Realized strategy
 Decisions are determined by both analysis
and unforeseen environmental
developments, unanticipated resource
constraints, and/or changes in managerial
preferences

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 Strategic Management Process

Exhibit 1.2

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The Strategic
Strategic
Management
Management
Process
Process

Exhibit 1.3

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 Strategic Analysis
Consists of “advance work” that must be
done in order to effectively formulate and
implement strategies
Starting point

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 Strategy Formulation
A firm’s strategy formulation is developed at
several levels:
Business-level
Corporate level
International
Entrepreneurial

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 Strategy Implementation
Ensuring proper Establishing effective
strategic controls and means to coordinate
organizational designs and integrate
activities within the
firm as well as with
suppliers, customers,
and alliance partners

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 Corporate Governance and
Stakeholder Management
Corporate governance
 The relationship among various participants
in determining the direction and performance
of corporations
 Shareholders,
management,
board of directors

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 Corporate Governance and
Stakeholder Management (cont.)
Board of Directors
 Elected
representatives of the
owners
 Ensure interests and
motives of
management are
aligned with those of
the owners

Exhibit 1.4

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 Corporate Governance
Three mechanisms ensure effective
corporate governance:
An effective and engaged board of
directors
Shared activism
Proper managerial rewards and incentives

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 Stakeholder Management
Zero sum view
 Stakeholders compete for attention and
resources of the organization
 Gain of one is a loss to the other
 Rooted in the traditional conflict between
workers and management

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 Stakeholder Management
Stakeholder symbiosis view
 Stakeholders are dependent upon each other for
their success and well-being
 Mutual benefits

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26
 QUESTION
Outback Steakhouse has developed a
sophisticated quantitative model and found that
there were positive relationships between
employee satisfaction, customer satisfaction,
and financial results. This is an example of
__________.
A. Zero-sum relationship among stakeholders
B. Stakeholder symbiosis
C. Rewarding stakeholders
D. Emphasizing financial returns
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 Crowdsourcing
Crowdsourcing
 practice wherein the Internet is used to tap a
broad range of individuals and groups to
generate ideas and solve problems.
 Linux, Amazon, Wikipedia

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 Social Responsibility
Social responsibility
 The expectation that businesses or
individuals will strive to improve the overall
welfare of society

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 Social Responsibility
Triple bottom line
 Assessment of a company’s performance in
financial, social, and environmental
dimensions

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 Example: Social Responsibility
 Starbucks Coffee Company defines CSR as:
 Conducting business in ways that produce social,
environmental and economic benefits for the
communities in which we operate and for the
company’s stakeholders, including shareholders.

 Some tangible benefits include attracting and retaining

our partners, customer loyalty, reducing operating costs,
and creating a sustainable supply chain.

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Strategic Management Perspective
All managers and employees must:
 Take an integrative, strategic perspective of
issues facing the organization
 Assess how functional areas and activities
“fit together” to achieve goals and objectives

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 Three Types of Leaders
Local line leaders
 Have significant profit-and-loss responsibility
Executive leaders
 Champion and guide ideas, create a learning
infrastructure, establish a domain for taking
action

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 Three Types of Leaders (cont.)
Internal networkers
 Generate power
through the conviction
and clarity of their
ideas

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 Coherence in Strategic Direction
Hierarchy of goals
 organizational goals ranging from, at the top,
those that are less specific yet able to evoke
powerful and compelling mental images, to, at
the bottom, those that are more specific and
measurable.
Vision, mission statement, strategic objectives

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 A Hierarchy of Goals

Exhibit 1.6

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 Coherence in Strategic Direction
 Organizational
vision
 Goal that is
“massively inspiring,
overarching, and long
term”
 Represents a
destination that is
driven by and evokes
passion

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 Why Do Visions Fail?
The walk doesn’t Not the holy grail
match the talk An ideal future
Irrelevance irreconciled with the
Too much focus leads present
to missed
opportunities

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 Coherence in Strategic Direction
Mission statement
 Set of goals that include both the purpose of
the organization, its scope of operations, and
the basis of its competitive advantage
 Has the greatest impact when it reflects an
organization’s enduring, overarching strategic
priorities and competitive positioning

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 Coherence in Strategic Direction
Strategic objectives
 A set of organizational goals that are used to
operationalize the mission statement and that
are specific and cover a well-defined time frame.

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